The coronavirus pandemic will radically accelerate automated self-service in the food sector.
At the time of writing this, I was sequestered at home with my wife and boys with flu-like symptoms that we can’t rule out as coronavirus due to the shortage of testing kits. After worsening symptoms, our son was tested and the results were negative. We nevertheless spent a week in total isolation. So, like many Americans, we played our role in stress testing online grocery shopping.
After multiple attempts to get through Amazon’s overloaded systems, I placed an order with Instacart. It was a good experience and it’s in times like these that you really feel grateful to have access to this kind of service. It is, quite literally, what is enabling me to feed my family without potentially putting others at risk.
Pandemic Stress on Food Retail
This outbreak is placing intense pressure on food retailers. Per government order, restaurants in many communities across the country are now closed for on-premise dining, and in many cases shifting their operations to takeout and delivery to stay in business. While these closure orders don’t currently apply to retail grocers, these businesses are experiencing another form of pressure as panic buying puts both their systems and their people to the test.
As a result, this virus has now thrust retail grocery workers, along with healthcare workers, into a role that we need to recognize as a new form of heroic public service. We owe a great debt to these people and should be treating them with the utmost respect in these difficult times.
Automation as Part of the Solution
Part of the solution lies in online ordering of food. These systems have been around for many years, but we are now putting them to the test. Online ordering is part of a much larger trend toward automated self-service. In food retail, these systems break business processes into three overlapping, but distinct, tasks: selection, payment, and delivery (or “fulfillment”). You can think of selection and payment are front-end, customer-facing processes, while delivery is a back-end process.
What we are now seeing is a move to remote, digital interfaces as a replacement for front-end processes typically done at a physical retail outlet. While Uber Eats, DoorDash, Grubhub, Instacart, and food ordering from Amazon, Walmart, and Target may be new to many of us, we’ve had the basic technologies for web-based shopping for nearly a quarter century now. These systems are well understood.
The real challenge with online food ordering is the back-end. That is because these systems are currently optimized for physical retail. The total retail groceries market in the U.S. is $655 billion, and of that, online groceries account for $20 billion, or just 3%. Once enough of the market shifts online, food fulfillment systems will look a lot more like Amazon warehouses than Instacart shoppers hand-picking products for us from Safeway shopping aisles. Companies like Takeoff Technologies are already well down the road to building micro fulfillment centers for this new back-end for food retail. Ultimately, these systems could be fulfilled by self-driving cars and drones.
From the perspective of today’s pandemic, this shift can’t come more quickly. When we get to fully automated self-service in food retail, it will give us a perfect solution for maintaining social distancing while we fulfill society’s essential role in distributing food. The coronavirus is going to play a powerful catalytic role in this transformation. The economic stresses we will feel over the next couple of years will largely come from shifting employment from traditional retail operations to the new back-end systems for online order fulfillment. Amazon is currently hiring 100,000 new workers to this end. In Western Washington alone, Albertsons and Safeway are now hiring 2,000 drivers and in-store workers to deal with the crisis.
What Do We Want for the Future of Food?
I am extremely thankful for the availability of online food shopping services right now. As in any crisis, the most pressing need is saving people’s lives, and these systems are helping us address the very real challenge of feeding people while we “flatten the curve” of this pandemic.
Waves of this virus could be with us for quite some time, however, and the resulting surge in people’s use of online food ordering is likely to have a lasting impact on the food delivery sector of our economy. A crisis like this is extremely helpful for stripping away veneers. What it has shown quite shockingly is that our food delivery systems aren’t just a matter of convenience; people’s lives actually depend upon them. As we hunker down, we also need to consider what we want these systems to look like in the future.
Without some form of intervention, we are going to see many of our most beloved local restaurants fail over the next couple of years. There are things that each of us can do individually, such as doing more takeout from our favorite local places. In one case, here in Seattle, a creative developer friend of mine is using GoFundMe to pay local restaurants for food delivery to stressed out healthcare workers. Ultimately, however, this is a much larger problem that will require local governments to come up with targeted policies to help restaurant owners survive and eventually recover from the current crisis. One idea I like is policies aimed at enabling neighborhoods and surrounding communities to make equity investments in struggling local restaurants that they want to preserve and support.
Meanwhile, it is chain restaurants that will have the resources to innovate in response to the crisis and much of that will take the form of increased take-out and delivery and automation. Automated self-service in fast food outlets has seen its share of problems, but this pandemic is likely to provide the surge in demand needed to make it the new reality.
The online grocery wars have been underway for several years now as giants like Amazon, Instacart, Walmart, and Target battle to disrupt this sector of the economy as it automates and moves online. Make no mistake, this crisis is going to accelerate that shift in a very dramatic way. One solution is to build open-source platforms for online shopping and fulfillment that can be shared by local and regional grocers. Similar open-source solutions could also help local restaurants thrive in the era ahead.
If we are not careful, we could emerge from this crisis with a winner-take-all structure in our food delivery markets. It may seem improbable right now, but the remarkable success of Amazon, Google, Facebook, and Netflix in consolidating other markets gives us good reason for concern. As giant corporations rush to our rescue, they do so knowing they are fulfilling their ultimate goal: maximizing profits for shareholders. In building the future of our food delivery systems, what we need is a far more inspiring code within that code.
Hi Gideon,
I hope this doesn’t come to pass if our experience is any indication.
We live in a rural area of Australia, a few hundred km from Sydney, a city of 5 million people.
The 3 major supermarket chains in Australia have large stores in our nearest town. (The largest of the 3 chains is a A$50 billion company) However, while the supermarket shelves are bare, smaller grocery shops have few shortages. The small stores have the flexibility to adapt to the changing circumstances, whereas the big supermarkets have rigid supply chains that simply can’t adapt to drastic change quickly enough. (Interestingly, the large chains have had to shut down online sales as well). These issues are playing out all around Australia, in both urban and rural communities.
Cheers
Chris
Thanks for weighing in with the view from Australia, Chris. Even though it shouldn’t be a surprise, it still does surprise me to hear similar conditions popping up all the way around the world.
You bring up an excellent point. These systems are now being stress tested beyond anything that their developers might reasonably have imagined in commercial terms. When we view food distribution as a fundamental societal service, then we start thinking about things like anti-fragility and redundancy. But when we see them as primarily profit-maximizing ventures, that kind of investment seems like overkill. In fact, a lot of what we are dealing with here are the effects of lean manufacturing and supply chains that have as much excess inventory as possible wrung out of the system. That works great, and the algorithms do their jobs, under most normal conditions. But as we are now seeing, it doesn’t work so well with pandemic-induced panic buying. I’ll bet that a good part of this is what I am explaining in the article, which is the sudden shift from the old model to the new, and that much of the problem will get sorted out once we have shifted over. But the problem of lean is a question of efficiency, which is something that runs unchecked when profit maximization is the primary goal.
I don’t foresee us moving toward government distribution systems as the solution. China and Russia have demonstrated the follies of that path. But I do expect that as a result of this crisis, we will (hopefully) see governments stepping up with policies that ensure that we have more slack in the system and perhaps more deliberate approaches to anti-fragility.
You’ve hit the nail on the head I think Gideon, maximised for profit instead of resilience. I’m of an age that worked in the old system, warehousing that carried large amounts of stock and retailers that ordered stock months ahead based on historical sales. The introduction of “just in time” ordering in the 80s (in NZ at least) was something that to me seemed particularly high risk, but the system mostly worked fine in what were normal conditions.
I’m not sure if the government here will do much about hardening the supply chain, they’re blaming un-Australian behaviour for the abnormal demand, but for the retail industry, I think they might see the need for a more robust system.
Stay safe
Cheers
Chris
Paul Krugman agrees with you too. He recently wrote a piece published in NYTimes (argh I can’t find it but it was this week), basically saying service workers jobs are going to radically change. They will move from personal contact, like a waiter at a restaurant, to a semi-automated contact, like food delivery systems. He worries that even with the uptick in new economy jobs, there will not be enough employment to keep people going. And with a large portion of Americans living paycheck to paycheck, maxed out on credit cards, the results won’t be good. I think hospitals will also need bailouts, which could be a good opportunity for much needed concessions from the health care industry. I was just looking at Italy’s timeline, and it was early March when they were reporting 53 deaths like Washington is today. I think we are going to know a great deal more about how the coronavirus stress hits this economy before the summer starts. Hang on to your socks!
Thanks for sharing your thoughts on this one, Doug. It sounds like Krugman is seeing this very much as I do. I’ll see if I can find that reference later.
As to the pandemic, my sense is that things are going to seem even darker than they are right now for the next month or so. As test kits become more available, the number of confirmed cases will skyrocket and that is going to frighten many people. Also, and more important, the death number is going to jump dramatically too as the exposures that happened before all the social distancing measures take their toll. This is going to be tragic in its own but it will also further the psychological impact on the economy. Right now we need to be protecting our healthcare and food distribution workers like our lives depended upon it. Because they do.
Thanks for sharing your thoughts on this one, Doug. It sounds like Krugman is seeing this very much as I do. I’ll see if I can find that reference later.
As to the pandemic, my sense is that things are going to seem even darker than they are right now for the next month or so. As test kits become more available, the number of confirmed cases will skyrocket and that is going to frighten many people. Also, and more important, the death number is going to jump dramatically too as the exposures that happened before all the social distancing measures take their toll. This is going to be tragic in its own but it will also further the psychological impact on the economy. Right now we need to be protecting our healthcare and food distribution workers like our lives depended upon it. Because they do.
Gideon, very interesting article. As Chris mentioned, I have seen the same issue of shortages at Publix and Walmart, while our little local store seems to have everything from meat to hand sanitizer. I don’t know how long that phenomena can last, as they are dependent on supply chains. My concern about the future after this crisis, beyond the food distribution, is whether retailing itself will be able to recover. Our two largest shopping malls are now closed, and most of the larger stores there are still providing online sales. So much had already moved to online prior to this, and now, forcing the rest of the population to go online will help convince them of the ease and convenience. Most of the restaurants and bars in our area are non-chain establishments. I cannot see how the majority of those can survive, being dependent largely on tourism. Most struggle even in normal times, and this could be the final blow. We are definitely in uncharted times. It’s hard to believe that just a few short weeks ago, life was normal, people going on trips, coming to Disney World, taking their cruises. This is like a worldwide bomb dropped.
I am sorry to hear that you and your family are dealing with this. I will be praying for all of you, that you soon are back to good health. Keep me posted.
Thank you for dropping by, Bill. I hope that you are doing well. And thank you for the concern for my family.
What you are describing is my concern as well. The big mall just north of us closed just last year. Most of it is being converted to housing (and an NHL hockey rink) though there will be some retail left. What seems to be surviving are high-end shops, at least here in Seattle. All this has been sneaking up on us for a while now but this crisis is going to catapult us into some new reality, fastforwarding us by several years, I think.
Thank you for dropping by, Bill. I hope that you are doing well. And thank you for the concern for my family.
What you are describing is my concern as well. The big mall just north of us closed just last year. Most of it is being converted into housing (and an NHL hockey rink) though there will likely be some retail left. What seems to be surviving, at least here in Seattle, are the high-end shops. All this has been sneaking up on us for a while now but this crisis is going to catapult us into some new reality, fast-forwarding us by several years, I think.
Over the years, I have noticed what I’ll call the “Amazonization” of quality assurance: although Amazon provides limited return guarantees, the nature of the diverse market means there is no way (nor, seemingly, much effort) to check product claims. Product ratings start out with a raft of purchased 5-star reviews. To move into the grocery realm directly, although I have a reasonable confidence what will arrive when I order a 2-pack of 10 oz. Kikkoman Soy Sauce; I know there are soy-sauce-like abominations in production with a vinegar base. Will I be able to make fine distinctions about ingredients or product quality in grocery items I buy online?
I already live with this dilemma for consumer goods, because of being expatriate and mail order returns being basically impossible. When it comes to food thoughk, where the proof is in the eating and where a future Amazonized grocery marketplace will be saturated with daily changing brands from all around the world; where will I find the assurance that comes from dealing with a local grocer at the end of a savvy and devoted supply system? When we feed ourselves, we can’t afford to fall victim to entrepreneurial experiments distributing rice-like-product-of-pure-melamine-!
Right now, the grocery services and restaurant take-outs are still originating from established and conventional store-fronts that depend on their community relations. But I don’t think we’ll treasure so much the convenience once we realize that we have absolutely no idea what is in that bottle of salad dressing that has been drop-shipped to our front door in only 12 hours from Outer Berzerkistan.
https://uploads.disquscdn.com/images/cce3bf0ba94772ce1413cc7341fa1786c4def2c8935c825d3acaecee6a28fee4.jpg Good to see you here, Cade. Thanks for weighing in.
I’d not thought about this whole issue of quality control that you are raising. It is super important. On the one hand, I think that consolidation could actually help with that, in the sense that no large brand would want to expose itself to the bad reviews and feedback. In the case of smaller restaurants, I think that’s harder. That’s why we have to rely on municipal ratings for restaurants.
On the grocer side, I don’t think that the existing FDA guidelines would necessarily go away as far as distributing food here in the US. But to be honest, I just don’t know enough about the laws here to know whether a bottle of salad dressing could make it through from Outer Berzerkistan. If you ever get a chance, I highly recommend this PBS special on little-known government chemist named Dr. Harvey Wiley. It is a fascinating look at how much of a struggle it was in the late 1800s to battle what was then an extremely corrupt and dangerous food industry.
Your point about QA and Amazon is interesting though. They handle such a broad breadth of products that their solution seems to be, send it back, no questions asked.
Some vendors on Amazon do not use the Amazon warehouse system. Instead they drop ship from their own location. I have bought computer components like this which arrived at the forwarding company’s address in Florida via DHL International express, and were then forwarded to me via the forwarding company’s air freight system. That DHL package could contain anything that would be allowed by US Customs. The US Customs website describes their restrictions in these general terms: “Examples of prohibited items are dangerous toys, cars that don’t protect their occupants in a crash, bush meat, or illegal substances like absinthe and Rohypnol. “Restricted means that special licenses or permits are required from a federal agency before the item is allowed to enter the United States. Examples of restricted items include firearms, certain fruits and vegetables, animal products, animal by products, and some animals.”
I am quite confidant a bottle of salad dressing from Outer Berzerkistan – provided it is not obviously animal-product-containing – would sail right through: Customs is not certifying FDA approval when they let a package through.
Regardless of Amazon return policy, I think when we are talking about food products in many cases, the return shipment cost will be on the same order of magnitude as the item cost – not worth the hassle. Returning opened food that was unpalatable or made you sick is intrinsically impossible (i.e. been ‘used’ and no longer in original packaging!). And with Amazon, return is the only recourse.
So if I receive bad food after ordering it through Amazon, whose ‘fault’ is that? Did I purchase unwisely? Did Amazon not vet the vendor sufficiently (a chronic issue)? Did the vendor game the system (an international pastime nowadays)? Was it just an accident (i.e. no quality control measures)? It is becoming an ‘Egyptian market’ – caveat emptor
Excellent and disturbing point, Cade. It seems like Amazon Fresh will need to have different policies from the main Amazon platform as a result. Would they then operated simply like Whole Foods with some of the same guidelines that traditional food retailers have rather than a more open platform? Interesting questions. Thanks.